"We're making great progress in repositioning our firm for a strong future," says CEO Peter Kraus.

The biggest gains have come in fixed income—the markets of the moment as investors desperately hunt for yield. AllianceBernstein says 85% of its fixed-income assets are in products that have outperformed benchmarks for the three-year period through June 30. None have been more impressive than
AllianceBernstein High Income fund
(ticker: AGDAX), which has soundly bested its rivals over one, three, five, and 10 years.

Thanks to $4 billion of inflows into fixed-income funds, the firm's second-quarter net outflows were the lowest in about four years, leaving a total of $411 billion in assets under management. The improvement was especially evident in investment by individual investors: In the first half of the year, they put in $5.8 billion more than they took out.

The pickup is sorely needed. Disastrous bets under former CEO Lew Sanders sent investors fleeing and cost the New York-based firm half the $800 billion in assets it held at the end of 2007. The casualties included the firm's I
nternational Value fund
(ABIAX), its biggest in 2007 with $13.1 billion of assets, which has shrunk to just $700 million.

Little wonder investors have clobbered the company's stock (AB). The shares are down 37% over the past three years, quadruple the loss of the financial-services sector.

Kraus, a Goldman Sachs alum, has moved aggressively to shore up AllianceBernstein (see Barron's cover story, "The New Broom," Oct. 11, 2010). He's slashed costs and set on a product-development tear, rolling out 57 funds over the past three years. One big new winner: the
High Income Muni fund
(ABTHX), which has taken in $1 billion of assets and sports a one-year return of 16.66% through Sept. 30.

Michael Sloan for Barron's

But Kraus still faces challenges in equity investing. Combined, asset-weighted performance of the firm's equity funds in the past year ranks it in the 61st percentile, according to Morningstar. That's up 11 notches from its three-year ranking, but well behind the firm's rankings in municipal bond (27th percentile) and taxable bond (52nd) offerings. International stock funds have been especially weak.

AllianceBernstein needs to shape up its equity performance to avoid being left behind when investors' appetite for stocks returns, says Morningstar equity analyst Greggory Warren.

ALREADY, THERE ARE SOME BRIGHT SPOTS. The firm's
Large Cap Growth fund
(APGAX), with a one-year return of 32.73%, has been a standout, a reminder of the firm's strong history in large-caps. The
Growth & Income fund
(CABDX) has returned 31.86%.

Robert Keith, head of sales and distribution, argues that the more diversified firm is now better-positioned for the long haul. Categories other than large-cap equity, such as asset-allocation funds, now account for 83% of assets under management. "We're going to be able to weather any market cycle more smoothly than we have in the past, when we were more concentrated," Keith says.